Delay pension saving and lose £175,000

Brits waiting until the launch of Personal Accounts in 2012 to start saving for retirement are basically giving up £175,000, new research from fund manager Fidelity, reveals.

Warning: Don't miss out, start saving now

Personal Accounts, the Government's answer to the pension crisis, launch in 2012 and will offer millions of Britons a workplace retirement savings scheme for the first time.

Julian Webb, at Fidelity International, says: 'Personal Accounts in 2012 will see a big shake up for both companies and employees but a real concern is the prospect of people sitting back until they are forced to save – especially when many will be feeling bruised and battered by the credit crunch.'

It is estimated that today around half a million people have access to their company pension scheme but do not join.

Under Government plans for Personal Accounts, all employees over 22 years of age will be automatically enrolled into the pension scheme, if they earn more than £5,035 a year. Workers who already have access to a company pension will be automatically enrolled into it, rather than enter a Personal Account.

With Personal Accounts, workers will contribute 4% of their earnings, which will be topped up by employer contributions of 3%, and tax relief of 1%. The Government hopes up to 10m workers will benefit.

But anyone who has the opportunity to start saving now but decides to defer until they are compelled to do so will miss out, in many cases severely so. For a 25 year old this could be as much as £175,000.

Even someone who only commits £100 a month rather than the maximum £3,600 a year allowed by Personal Accounts could gain an extra £58,000 by starting early.

A 25 year old who starts saving £300 a month could be sitting on a pension pot worth around £901,000 when they reach 65. However, if they wait until 2012 before starting, the sum amassed by retirement age would be nearer to £726,000 – a £175,000 shortfall.

And if a 25 year old was saving just £100 a month, starting today, their pot could be worth just £300,000 but if they wait until 2012, it would be valued at merely £242,000.

When calculated for a 30 year old, the results are even starker – if they started saving £300 a month today, they could be sitting on a pension worth some £626,000 but if they wait until 2012, the pot would shrink to £498,000 - £128,000 less. If they were saving just £100, the pension's value would be just £209,000, or a paltry £166,000 if they waited until 2012 to start saving.

Webb adds: 'Starting early simply gives people the opportunity to build a bigger pot by retirement – it also puts people in a better position to recover from falls in stock markets and interest rates. I'd suggest anyone with access to a company pension scheme but who decided not to join should reconsider that decision now.

'Sometimes it helps to remember that company pensions usually include free money. With the average employer contributing 6.3% of gross salary to scheme, anyone on the average wage of £26,020 could get, free, an extra £136 a month. If they choose to add in their own money as well then the Government will bump this up with tax relief.'

It is estimated that, assuming growth of 7% a year, generous in today's terms, savers must put away 15% of earnings every year for 40 years to be able to retire with just 50% of final salary.

To work out how much you should save, have a look at our Pension Pot Calculator below: